Electronic value storage systems have gained widespread acceptance over the past thirty years or so, but the scope of applications in which they can be used continues to be limited. This is because the value storage system typically consists of a central database, with debits and credits being made at the database. A customer is typically issued a plastic card with a magnetic stripe identifying the customer's account. The card typically contains no balance information or other information besides the customer's account number or other identifying number.
The card typically contains no security provisions. Instead, security is provided by a separate access code or personal identification number (PIN) preferably memorized by the customer, which must be provided along with the card in order for the card to operate. The access code is preferably stored at the central database along with the identifying number found on the card.
The cards utilized in conjunction with the central database system are quite inexpensive, but the cost of the cards represents only a trivial portion of the cost of the overall system. The system is dependent on one or more central databases, each of which can be quite expensive. Moreover, the databases must be accessible to every terminal at which the card might be used. A typical system thus requires a card; a card reader at the point of sale; a central database at the customer's home bank; and a telecommunications network which must be able within seconds to establish a connection between a point-of-sale terminal in, for example, Kuala Lumpur, Malaysia, and a central database in, for example, New York City.
The need for a large central database, which may need to be accessible over a wide area, increases the cost of the system and makes it impractical for a small merchant who may, for example, wish to institute an automated customer loyalty tracking and rewards program. For such an application, it would be preferable to have value stored on the card itself. In this way, a decentralized system of cards and readers could be created which was no larger than necessary to serve the required number of point-of-sale terminals. Unlike the case in which a central database was used, the decentralized network would not require a central data storage location in order to operate. Moreover, under normal operation, one reader would not necessarily need to be in contact with another reader, but instead could execute its transactions independently.
Card systems, such as the SMARTCARD® have been introduced in which information is stored directly on the card, but these systems suffer from several drawbacks. First, the cards and the readers are expensive. The cards range in price from $3.50 to $13.00, while the readers range in price from $59.00 to $420.00 and the transaction costs range from $0.02 to $0.16. The cost of the card, in particular, is a significant factor, and limits the flexibility of practical uses of the card. It would be impractical, for example, to use the card for a one-time, limited duration promotion, as the benefits to be derived over a limited time would not cover the cost of the cards. Moreover, the cost of the card readers and of the transactions limit the base of customers who may be able to use the cards.
Cards such as the SMARTCARD® also have limited security. The danger therefore exists that fraudulently manufactured cards will be used, thus disrupting the business of legitimate customers.
A need therefore exists in the art for a low-cost, high-security system for electronic storage of value on an easily transportable medium such as a card.